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Summary:

ANALYSIS: PayPal is suing Google and some of its executives. Here is a behind the scene look to give the real skinny. Internal politics, boardroom betrayals, multi-million dollar sign-on bonuses and hurt egos — it is a drama worth a daytime soap. Read on.

gameofchess

PayPal, the e-payments subsidiary of eBay, has sued two of its former executives — Stephanie Tilenius and Osama Bedier — who defected to Google and have helped the search giant ramp up its mobile payments offering, including its newly announced Google Wallet NFC platform. The lawsuit, which also names Google, alleges misappropriation of trade secrets, breach of contract and a host of other claims related to the recruitment of PayPal employees and the alleged improper use of PayPal’s confidential information.

Large companies often sue former employees — mostly out of spite — without much success. But this time around, PayPal is serious, as the company feels these former executives threaten its future business. The lawsuit also highlights the huge stakes in mobile payments, as giants like eBay and Google jockey to win a piece of an estimated $630-billion market by 2014.

While Tilenius might be getting hit with the lawsuit, the real target is Bedier, whose departure on Jan. 24 wasn’t received well inside the eBay executive suite. Bedier was one of the earliest PayPal employees and was widely viewed as one of its future leaders if eBay decided to spin-off the division. EBay CEO John Donahue viewed Bedier favorably, and our sources say the legal wheels were set in motion for this lawsuit the day Bedier switched loyalties to Google.

PayPal’s Forthcoming Announcements

When we asked our sources if PayPal was spooked by Google’s entry into the mobile payments business, we were told not really. Instead, PayPal believes that Bedier, who was leading the company’s mobile payment and point-of-sale offerings, had access to all its trade secrets — information on technology, strategies, partnerships etc. — which could cause material damage to the company and its prospects. PayPal is getting ready to make a sweeping product announcement in the coming days that talks about open commerce platforms and mobile payments, which sounds eerily similar to Google’s song-and-dance from Thursday.

PayPal alleges Bedier took trade secrets with him on his own computer, as well as through a Dropbox account, and has refused to return any of the data taken. PayPal says Bedier used the information in meetings with clients of both Google and PayPal, and that the information — which covered Bedier’s knowledge of Google’s own shortcomings in this area — is critical to the battle over mobile payments.

“Despite Bedier’s assurances and protests to the contrary, the point of his departure to Google has been to lead Google’s efforts in mobile payments, particular mobile payment at the point of sale. Bedier is willfully usurping PayPal’s trade secrets in these areas as well as well as its digital wallet in the cloud strategies for Google’s and his own gain. Both Bedier’s departure itself and Bedier’s actions after his departure have damaged plaintiffs,” the complaints reads.

Money Buys Everything

PayPal had been in close negotiations with Google from 2008 to 2010 to become the payment option on Google’s Android platform, mostly to compensate for the shortcomings of Google’s own Google Checkout platform. Andy Rubin and Bedier were spearheading the conversations between the two companies, which were close to being finalized in the fall of last year, according to the lawsuit.

Meanwhile, PayPal alleges Bedier had been interviewing with Google at the same time and was finally convinced to jump ship after meeting with Google’s senior management, including now-CEO Larry Page. The PayPal executive waffled, but was finally won over after Google offered him multiple millions of dollars, according to our sources, and this decision sent shock waves inside PayPal according to our sources.

The other causes of action in the lawsuit have to do with breach of contract and similar violations by Tilenius and Bedier in recruiting PayPal employees, despite contractual agreements to abstain from that. Tilenius recruited Bedier, who in turn lured away at least two PayPal employees, and Google is cited for interference for encouraging the actions of Tilenius and Bedier.

Bedier, however is merely a pawn in the much larger game of mobile payments. PayPal, Amazon and Apple, along with the major carriers, have access to what Google sorely lacks: an entry to the customer’s wallet. And because the company doesn’t have access to these wallets, it’s locked out of the most lucrative part of the mobile ecosystem, and is left to pick up the crumbs via mobile advertising.

All is not well at Google, even with the help of its new hires. Our sources say there is a lot of internal debate at Google about its payment strategy, with some folks wanting to appease the carriers and have them become the payment options. Others disagree and are insistent that Google develop its own payment system – and rightfully so. Multiple sources have described the internal debates as political.

Tilenius’s Tumultuous Tenure

Tilenius, our sources say, has been in a sticky situation for a while at PayPal, and was described as a curious hire for Google. Furthermore, it’s said Tilenius’s championing of questionable acquisitions such as Jambool cost her political capital. Apparently, Bedier didn’t take too kindly to reporting to Tilenius either, and last month, Google appointed Jeff Huber (another eBay alum) as the SVP of commerce and local — Tilenius and Bedier now report to him.

It’s still early in the mobile payments wars, but with so much money at stake, PayPal is making it clear it’s not going to be shy about turning to its lawyers. And it sounds like it has something to be angry about. If its account is true, Bedier is in a key position to help Google compete with PayPal by tapping what he knows about PayPal’s work in this space. There’s two sides to every lawsuit so we’ll have to see how this turns out. But make no mistake, this is just one salvo in what could be a big messy war.

Check out a video we shot with Bedier just after the Google Wallet announcement:

  1. So once you are hired with a company that may or may not have trade secrets, you can never change and get hired by a competitor?

    I’d like to know:

    1. Is Google Wallet compatible with ARM TrustZone or is that NXP N65 the only secure element implementation that is going to be used?

    2. At which point is the secure pin code entry being used? Is it for each payment? Is it only once for each time you add $100 from one of your accounts to your wallet?

    3. Can we use this secure element also for logins all over the web, be it to login to our Google Account, as a replacement to the 2-step verification process that currently uses SMS? I’d like to have this secure pin code show up automatically every time I login to any website. Make this kind of a secure openID system, and make it replace all usernames and passwords on the Internet, 100% secure and easy.

    4. Does this work for net banking? Does this replace the physical calculator thing some people have to use for net banking?

    5. How can you be sure you have activated the secure element pin code mode, and that the screen has not “simply” been hi-jacked by a keylogger app that logs your pin code and proceed imediately to empty all your bank accounts? Shouldn’t the phone have a secure mode light diode that should light up next to the screen to confirm that you are in fact in secure element pin code mode and that you can 100% trust what is on the screen is secure?

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    1. 6. Can other verification systems be used than the basic pin code? Could there be bio-metric verification, or some of those screen pattern verification systems like the ones some use for unlocking the screen?

      7. Can you explain how Visa and other credit cards can currently be used? Is it correct that any credit card including Visa can be used to add funds to your pre-paid Google CreditCard?

      8. Any plans to add net banking integration or some other forms of funds so that no payment fees need to be paid by the consumer like there is some kind of 2% or so transaction fee when paying with a credit card? How do we escape paying those transaction fees? Could there be some kind of integration to something like Dwolla.com?

      9. What’s going to happen with user to user payments?

      10. Could all websites that take credit card payments send the user to authenticate on the phone to process the payment instead, without having to manually enter credit card details on every website?

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  2. Om – Once again your bias on anything related to Google is showing up, They have worked so hard to get virtually get all those who are important in the credit card ecosystem on-board. If Paypal cant innovate and deliver ahead of others its their problem. Nothing prevented Paypal from having a no compete clause with Google (if there could be one) before they supposedly wanted to become the sole payment service provider on Android. Its a case of Sour Grape – just because Google hired Beider in January it cant have gained so much – stop this anti google propaganda – its ill befitting your stature. Google has delivered a stunner here after a while – let’s welcome that,

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    1. Chitra, you really think it’s ethical of a company to interview the key negotiator from the other side *while* negotiations are in progress? Is that good faith?

      What does it say about Bedier’s ethics to be engaged in such behavior and what does it say about a company that’s willing to do this? And now he works there and represents them. “Don’t be evil” – give me a break!

      High moral ground has long been surrendered here. Om is calling it for what it is.

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      1. Maybe Paypal wants an unreasonable cut on every transaction on a proprietary platform while Google wants to make a totally free service as an open platform and Osama Bedier wants to make a successful product so he asked Google to hire him.

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      2. No California has has been violated here – recently HP realized this. If PayPal really thought that Bedier is on the wrong side – they should have sued immediately after he joined Google – not after four months and after Google announced a product( Recently Microsoft did this to Salesforce). Om seems to have taken liberties with some other fact as well – if one reads Paypal court filings, it is clear that Tilenius has made it clear to Bedier that Jeff Huber is the person to be met for joining Google- nowhere this issue of Tilenius /Bedier conflict has come out except in Om’s world. In any company there will be differing views when a strategic decision gets taken – why single out Google. In equal measure let Om talk about what every employee feels about every decision taken at Apple, Microsoft, Cisco, Oracle, HP.

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        1. In my world — we reported and got more details as to the situation behind the scenes. It is not taking liberties but writing after talking/reporting to various people in the company, who were very close to the matter.

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    2. Chitra

      Thanks for the comment. It is a straight forward story which is presenting the information as it is. For other coverage on Google Wallet, you can go read the earlier posts and watch the interview with Beider.

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  3. Is Google now doing “evil,” and is this a sign that is now a grown up company? http://goo.gl/k4x1R

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  4. Lucian Armasu Friday, May 27, 2011

    What’s with all the hatred towards Google Wallet? They are the first to do this in a big way. So it is jealousy that their favorite company didn’t do it first?

    Anyway, I think you’re right about the part where Google doesn’t have much direct access to users, or hasn’t had so far, because now they have Android, and it’s still very early for Android. Just think of how big Android could get – billions of devices. So the market share for payments will inevitably come.

    But yes, it was stupid of Google to not push Google Checkout more over the years and improve it. It should’ve been a much better competitor to Paypal by now, at least feature wise, if not by market share. Oh well, hopefully with everyone going Android they’ll fix this soon.

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  5. What ethical person goes and interviews with a partner for a position that would create a competing product while negotiating a deal with said partner? This guy is completely sleazy. And Google is evil for conducting the interview while negotiations are taking place.

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  6. >>”PayPal, Amazon and Apple along with carriers have access to what Google sorely lacks — entry to end customer’s wallet.”

    not true. in addition to potential mobile payments on Android, there are 2 other large properties that could be options for payment — YouTube, and Gmail / Google Docs / Apps Marketplace.

    while the latter may have challenges monetizing except among SMBs, there is no question that YouTube is a MAJOR consumer property with huge reach (internationally, not just domestically), huge engagement, and tremendous potential for paid usage / monetization & collection of cc data.

    also, it would not be surprising to see Google pull the trigger on one or more large consumer vertical acquisitions if it thought it could get a large # of cc data via that play.

    watch this space closely. it’s going to be a roller coaster next 5 years.

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  7. Dave

    This is not about building mobile payment systems and deploying them through their various channels – it is about end customer relationships and end customers accounts. Google Checkout has been at best mediocre, at worse, disappointment.

    Frankly, Google and its mobile strategy is a seas of internal conflicts and competing ambitions. I am pretty sure this is going to be be messy.

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    1. * Om omitted the fact that Eric got cold feet on hiring Osama and after Larry’s assuming the CEO position, the recruitment and negotiations were finalized. This was Larry’s little egg. Lets see what pops out, or better yet, why not have Om call Eric and ask him a few questions! :)

      * fully agree regarding ethics of the PayPal “negotiator”.

      * agree with observation that Google is hardly a new comer to online payments. The facts, as of now, are that PayPal has a successful payment franchise whereas Google clearly valued PayPal’s know-how and resources.

      * outside of hardware innovations, there is little “tech” barrier to online payment systems (given a substantial body of knowledge on related techs such as cryptography, etc.). Having worked on a relatively minor (in this scope) ecomm system, I can attest from my experience that all the pain is in accounting procedures; dealing with payment processors; dealing with PCI and other requirements; … ;etc ad naus.

      * That said, my money is on Google in having the tech chops to provider a scalable backend to support the projected volumes. (But that is a couple of years down the line.)

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  8. Why be the 1st too words of the title in Spannish? I don’t know Spannish. This be not El Pais. I not smart enough to see how sofishticated than is.

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    1. It’s not Spanish; it’s Latin. It’s a reference to Shakespeare’s Julius Caesar. This reference is made almost anytime someone supposedly betrays someone else. Get over it.

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    2. And as the literary-nerd copy editor, I do occasionally forget not everyone knows the reference. Had it been in the text of the story, I would go back and link it, but for Johnny (and any other readers not familiar with Caesar), here’s a link for the background of the quote: http://en.wikipedia.org/wiki/Et_tu,_Brute%3F

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      1. Cyndy – that was a very thoughtful & transparent response. However, please resist the temptation to dumb things down. Literary references enliven the copy, and no reference will be recognized by everyone. Curious users (especially for this site) are probably savvy enough to google a reference and find the source quickly.

        Anyway, I think the original comment may have been a joke! :)

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      2. Thank you, BP.

        We know that we have a very smart reader and commenter base, and we’ll never dumb anything down.

        I do try to remember when editing the copy, however, that not everyone’s cultural references are the same, and when there is a questionable item, I’ll try to provide a link to an explanation to make it easier for readers if the author hasn’t already done so. I know that when I’m reading a site, the last thing I want to do is quit reading to open a new tab, so I try to think like a reader first. :)

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  9. The corporate reporting structure that this piece highlights seems to be an important element as the story develops. At WikiOrgCharts.com we’ve started to create an org chart of Google and I’ve placed Huber, Tilenius and Bedier on the chart.

    See http://bit.ly/dRl9go

    Would love the community to map out who the other people on the Bedier/Tilenius team are.

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    1. Farhan, hit your registration wall and stopped right there. Smilies need to be accessible. I recommend you reconsider.

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      1. Dear “Me” thanks for the feedback. Similar to Wikipedia we require registration for users who try to add or edit entries in WikiOrgCharts. We let everyone see the org chart but to access individual level detail (phone number + e-mail address) users need to be a part of the community.

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  10. Looks like PayPal wants to keep its payment monopoly when its clear the space needs innovation and more amenable customer support. Google changes games and I for one love to see what they do for the world of payments.

    Paypal didnt keep these two so thats a shame on them.

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